Methods for Calculating a Program’s Added Value

Dr. Marketing is Jack Harms, President of The Marketing Department, where he specializes in helping companies improve their competitive advantage.

Q: How can we get prospective customers to appreciate the “added value” of our services?
Dr. Marketing:
Quantify it. You must describe the value in language the prospect understands, i.e., in terms of dollars and cents. Simply explaining your services without describing the economic gain they produce does not define value. Prospects who do not have the knowledge necessary to fully appreciate the ROI associated with occupational health services are likely to relegate your program to the “Commodity Zone” and start asking about price.

Q: How can we quantify our results?
Dr. Marketing:
Occupational health services impact an employer’s bottom line by reducing medical costs and improving workforce productivity. To quantify value, estimate anticipated cost savings and/or productivity gains, such as the ability to reduce lost workdays by 20 percent using a proven injury prevention program. If the prospect has been experiencing an average of 10 lost workdays, then your program’s added value is the cost to the employer of two lost days. Your sales message needs to compare the cost of two lost days to the premium price increment your program charges, as illustrated in the following equation.

Added-Value Equation
Benefits (Cost Savings + Gains from 2
Fewer Lost Days)
Premium Portion of Your Price*
*If your price is equal to your competitors, use 1

Q: What if prospects are skeptical about our ability to do what we promise?
Dr. Marketing:
Stop promising. Anyone can promise, and sounding like everyone else leads prospects to conclude your services are like everyone else’s – a commodity. Instead, guarantee your results and offer to take a penalty if the results are lacking in some way. If you tell the prospect lost workdays will decrease by a certain number, he/she has every right to expect lost days to go down by at least that percentage.

Q: Why do we have to include a penalty?
Dr. Marketing:
By putting your program at risk, you confirm your commitment to deliver results while lifting the burden of possible failure from the prospect’s shoulders.

Q: How big a hit should we be willing to take?
Dr. Marketing:
For instance, to calculate the degree of risk to take, estimate how much new business you could add by offering a “Lost Days Guarantee.” Calculate the full gross margin it would produce, e.g., $40,000. (Incremental business does not have the same level of overhead expense as base business, so it produces a higher gross margin percentage.) Next, determine how much of the incremental gross margin you are willing to invest to capture the new business, e.g., $10,000. Next, create an engaging penalty offer that would absorb the margin you’ve agreed to put at risk. In other words, “If lost days are reduced by fewer than two, we will provide our injury prevention services at no cost for the following year.” This kind of offer has greater value to the customer than the cost to your program. In reality, the penalty simply reduces revenue you otherwise wouldn’t have received.

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